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MDC23 · Feb 2, 2010, 02:06 PM

Present And Future Values Of A Cash Flow Stream: An investment will pay $100 at the end of each of the next 3 years, $200 at the end of Year 4, $300 at the end of Year 5, and $500 at the end of Year 6. If other investments of equal risk earn 8% annually, what is its present value? Its future value?

Also what formula's do I use to show my work?

I appriciate anyone's help!

morgaine300 · Feb 4, 2010, 12:59 AM

These are the equations for annuities (series of payments):

$PV=Pmt\,\left(\frac{1-(1+i)^{-n}}i\right)$

$FV=Pmt\,\left(\frac{(1+i)^n-1}i\right)$

Those can be used when you have equal payments over a period.

The ones for lump sums are:

$PV = \frac{FV}{(1+i)^n}$

$FV=PV(1+i)^n$

(Those two are actually the same, just twisted around to solve for a different variable.)

That has to be used when the payments aren't equal, so the $200 is 4 periods, the $300 5 periods etc.